1) A share is trading at 250 pence in the market. Its volatility is 40 per cent per year and the risk-free continuously compounded interest rate is 3 per cent per year. The share will pay a dividend of 25 pence in 2 months time. Using the Black-Scholes-Merton option-pricing model), find the value of a three-month European-style call option on the share with a strike price of 260?

2) Using Blacks pseudo-adjustment for American-style calls, find the price of the corresponding American-style call given in Part 1 above. How much more valuable is the American-style optionif at alland what does it tell us about the optimal exercise of the option?

Make it clear and detailed step to step and how do you find the normal distribution values when doing the normal distribution value in the equations.